UK Energy Industry Outlook – 2016

In this article we aim to present a quick and easy to digest run-down of the main trends and developments in a highlighted sector of the process manufacturing industries in one of our covered regions. For more information on the areas we cover, click here.

In this issue, our Sector Manager – Energy, Paul Bryant gives a run-down of the UK energy industry. Note: Energy & Gas markets are considered as defined by the criteria for Protel bulletins & any views or options expressed are those of the author.

The Wider View

At a global level the low oil price and the COP21 Paris agreement continue to be the major talking points.
With a global glut of oil and the price wallowing, many redundancies and rig closures have resulted, and energy companies are scaling back their capital expenditure programmes – no surprise there.

Most analysts forecast continued low prices, although there has been some talk of OPEC reducing production rates to force a price rise. That said, the reacceptance of Iran into the ‘Global Community’, will get its oil to market and as such, there will be no shortage of supply. The analysts forecasting continued low prices for at least the next 18 months might well be the ones to follow.

The COP21 Paris accord was greeted by much mutual back-slapping and would, on the face of it, seem to be a success. However, the agreement still needs ratification and at the time of writing only one nation, Fiji, has ratified the agreement.

Sceptics are already disputing the figures and say that:
• A 2°C temperature increase limit is not an aggressive enough target.
• It’s not going to be met anyway because the numbers don’t work when crunched properly.

Whether in uncertain economic times the developing nations can afford to reduce their fossil fuel generation, or the so-called ‘developed’ nations will subsidise their transition to alternative fuel sources, remains to be seen.

The UK Perspective

The UK Government continues to take criticism from all quarters about its lack of policy and withdrawal of support for renewable and emerging energy technologies. The private sector is being expected to pick up the slack, as the controversial view from the top is that renewable technology costs have come down and subsidies are no longer needed.

The DECC want to see coal-fired generation phased out by 2025 and nuclear & gas-fired take over the base load generation. However, the government have pulled the plug on the Carbon Capture & Storage (CCS) development programme, which was designed to reduce CO2 emissions. This raises questions due to commitments to reduce emissions, as CCS could be a necessity when the UK is continuing to rely on a fossil fuel, gas. The nuclear programme is stumbling along and is considered by many to be inadequate, which still leaves gas to take up the slack.

The big talking point around gas is fracking. Seen by some as a cheap source of fuel to provide base-load generating capability, it is viewed as pariah by most and is subject to massive opposition on many fronts. The USA & Canada have massive shale stocks that they are exploiting, some of which is finding its way over here for use in the Petrochem Sector as feedstock. A North Atlantic pipeline has been mooted, but at present it will arrive by sea-going tanker. So many questions remain: Does the UK frack? Or let another nation frack on the UK’s behalf? The future is uncertain in this area and remains subject to debate.

In the longer term the ideal is to use alternative energy sources, preferably renewable, to provide all the power we need. At any one time the UK needs c.40,000MWe+ to power the National Grid. The bulk of this is coming from conventional sources – Coal, Gas & Nuclear – with support from energy management and peaking plant providers at times of crisis. There was one point in January this year that wind power provided nearly 30% of the UK’s demand which bodes well for the future. However, the UK climate means it is tough to rely solely on the wind or sun, which is where the renewables taking up base load capability hits a major snag.

Energy Sector Project Bulletin Coverage

On our MyProtel project search engine we are currently tracking:
• 367 active process intensive energy & gas projects;
• totalling a potential value of £27bn.

Solar and Wind are the two major renewable technologies we have at our disposal with multi GWe capability, but we need energy storage to make them work effectively. Various technologies are being looked at; batteries, compressed air and hydro are three current favourites. Get this working and the storage can import power at low demand times and export at peak times. This will go some way towards contributing to base load requirements.

Other alternative energy technologies better suit a distributed network, designed to reduce the base load requirement on a local level. Anaerobic Digestion (AD) is making massive inroads into CHP and Gas-to-Grid. District Heating Networks and Centralised Energy Centres are now featuring in a lot of redevelopment projects and new builds.

Energy from Waste (EfW) projects using Advanced Conversion Technologies (ACT) such as Pyrolysis or Gasification are diverting waste from landfill and producing heat and power for local industry or export to the grid. In addition there are several large (200MWe+) Biomass projects in development and others under consideration, typically, these are in 2 categories:

• High Energy demand users looking to become independent generators for their own consumption, with possible export.
• Integrated developments where there are multiple users (or the potential to attract them) for heat and power. These are often taking the form of ‘Green Energy Parks’ and using are Brownfield land on disused industrial sites.

Overall

It is likely we will continue to see a growth in AD plants, especially for Gas-to-Grid and as long as waste continues to go to landfill there will be opportunities for ACT EfW plants. But, whilst the Government hesitates over CfD, this will discourage investment and development of significant EfW plants will tend to be linked to a municipal waste management. The Capacity Market Auction had little impact on continuous output projects, tending to favour peaking plant and energy management service providers, some fulfilling their generating obligations with diesel gensets – which could be argued not to be in the spirit of the Paris accord!

To gain information on specific projects or gain more insight into this sector, including all the contact details you need to start your sales process at the right time, get in touch.